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Question: What’s the earliest I can file my income tax return?
Answer: Who knew the “fiscal cliff” would affect so many people? Acting Commissioner Steven T. Miller announced this week the IRS plans to open the 2013 filing season on Jan. 30, a full two weeks later than last year. This is the effective date for paper and electronic individual income tax filings. Remember, the fiscal cliff was all about many of the Bush era tax reductions phasing out? With the action Congress took to avoid these tax increases, computer programming changes and updating of forms at the IRS will cause some delays. According to the Jan. 8 IRS publication Newswire, about 120 million households would be able to file taxes with the IRS on Jan. 30. But if your return includes residential energy credits, depreciation or general business or adoption credits — just to name a few — filing could be delayed to February or March. Some examples of returns affected by the depreciation aspect are businesses with depreciation, anyone with depreciating rental properties, homeowners with a home office deduction for their business, farmers and more. A complete list can be found at www.irs.gov. Why the delay? Congress failed to act in a timely manner on these issues leaving the IRS no choice but to delay tax filing.
Along with the changes the IRS is implementing, it is continuing to ramp up its fraud detection mission.
Last year, the Electronic Fraud Detection System selected more than one million returns to examine, according to Nina E. Olsen, national taxpayer advocate. In addition, there is an inventory of 660,000 cases of identity theft. In her testimony before a congressional committee, she mentioned slowing refunds to allow the IRS time to identify fraudulent returns would be helpful but that would require changing the mindset of taxpayers.
In the past, most taxpayers who filed electronically could expect their refund in 14-21 days. As criminals develop more sophisticated tax fraud schemes and increases in identity theft, the IRS is hard pressed to keep up. Fraud detection could cause some return refunds to be delayed.
This year, the IRS is requiring more due diligence from tax preparers in fighting tax fraud and inaccuracies. Taxpayers who claim any dependent other than their own child may have to bring documents to the tax preparer proving that person lives in the household. If it appears the taxpayer has insufficient income to pay household expenses or deductions listed on the tax, the preparer must ask probing questions.
These questions are required to be asked and documented for the IRS by the tax preparer. Some preparer penalties for failure to ask the “right” questions have gone up five fold. Small business owners must have some business records copied and kept on file with the tax preparer if the return includes Earned Income Tax credits.
Paid tax preparers now must register and pay a fee to the IRS. By next January, all paid preparers must pass an IRS competency exam and each year complete 15 hours of tax-related continuing education.
The good news is if you use a paid preparer he or she should be more knowledgeable and updated on tax code changes. On the other hand, all the new regulations are labor intensive and may cause professional tax offices to charge more for their services.
There seemed to be a black cloud hanging over my annual tax software meeting. With the looming “fiscal cliff” not totally resolved, automated tax fraud detection to slow refunds, extra due diligence and documentation of questions and answers from taxpayers, tax preparers should count on a difficult year, not only difficult for the tax preparers but difficult for taxpayers. So, when your tax preparer asks you how you obtained the money to pay your mortgage, or asks you for a letter or other proof a dependent lived with you, do not be offended. It is IRS regulations.
Jerry Morphis owns Accutax in Elizabethtown.